Let Anderson & Associates help you figure out if you can eliminate your PMI
A 20% down payment is usually accepted when purchasing a home. The lender's liability is generally only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value changes on the chance that a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan guards the lender in the event a borrower defaults on the loan and the worth of the home is lower than the loan balance.
PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible. It's money-making for the lender because they secure the money, and they receive payment if the borrower is unable to pay, separate from a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Smart homeowners can get off the hook a little early. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
Because it can take countless years to arrive at the point where the principal is just 20% of the initial amount borrowed, it's necessary to know how your home has appreciated in value. After all, any appreciation you've gained over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be following the national trends and/or your home may have secured equity before things settled down, so even when nationwide trends predict falling home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. It's an appraiser's job to understand the market dynamics of their area. At Anderson & Associates, we know when property values have risen or declined. We're experts at identifying value trends in Vancouver, Clark County and surrounding areas. When faced with figures from an appraiser, the mortgage company will most often cancel the PMI with little anxiety. At which time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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